Intellectual property.

AuthorBagley, Jennifer M.
PositionTenth Survey of White Collar Crime
  1. Introduction

    Owners of intellectual property have great incentives to protect their rights in such property by pursuing civil remedies. Yet the possibility of civil sanctions alone is insufficient to deter violators who would infringe on another's trademark, copyright or patent, or steal a trade secret. Indeed, civil damages actions may be seen by some as just another cost of doing business. The void is filled by various federal and state criminal provisions, either specifically tailored to the type of intellectual property sought to be protected, or interpreted in such a way as to offer protection. These provisions are used with varying frequency to augment deterrence and punish perpetrators.

    This article focuses on each form of intellectual property - trade secrets, trademark, copyright and patent - and possible criminal sanctions under the applicable statutes.

  2. Theft of Trade Secrets

    1. National Stolen Property Act

      The National Stolen Property Act ("Act")(1) provides for criminal sanctions for any person who "transports, transmits, or transfers in interstate or foreign commerce any goods, wares, merchandise, securities or money, of the value of $5,000 or more, knowing the same to have been stolen, converted or taken by fraud ...."(2) The maximum penalty for violation of the Act is a $10,000 fine or ten years imprisonment, or both.(3) The federal courts have held the Act applicable to the theft of tangible property containing trade secrets under certain circumstances.(4)

      1. Elements of the Offense

      In order to obtain a conviction under the Act, the government must prove five elements: (1) that the items were transported or transferred in interstate or foreign commerce; (2) that the items are goods, wares or merchandise within the meaning of the statute; (3) that the value of the items equals or exceeds $5,000; (4) that the defendant knew the items were stolen; and (5) that the items were stolen, converted or taken by fraud. In prosecutions for theft of trade secrets, it is sometimes difficult to prove that "goods, wares or merchandise" were "stolen, converted or taken by fraud" and that the trade secrets have a value of at least $5,000.

      1. Transported in Interstate Commerce

        In order to fall within the scope of the Act, allegedly stolen trade secrets must be "transported or transferred in interstate or foreign commerce."(6) It is not enough for the prosecution to establish the physical presence of such an item in a state or country other than its original location; the government must prove "who carried it, or how, or who caused it to be transported."(7)

      2. Goods, Wares or Merchandise

        Defendants prosecuted for theft of trade secrets under the Act frequently argue that trade secrets do not constitute "goods, wares or merchandise."(8) Consequently, courts have set standards that trade secrets must meet in order to constitute "goods, wares or merchandise" within the meaning of the Act.

        In United States v. Seagraves,(9) the Third Circuit defined "goods, wares or merchandise" broadly as "such items of personal property or chattels as are ordinarily a subject of commerce."(10) In order to satisfy this definition, the court said the trade secrets must be stolen while in a tangible form; a violation cannot be established if the thief memorizes a secret formula and then writes it down after crossing some boundary.(11) Consequently, the court held that since the maps were the subjects of commerce, albeit of a specialized nature, they were "goods, wares or merchandise" within the terms of the Act.(12)

      3. Minimum Value of 5,000

        Congress included the $5,000 minimum value requirement to avoid overtaxing the enforcement mechanisms of the Department of Justice; the purpose of the Act is to address only the theft of items having substantial market value.(13) Defendants often argue that the Act is inapplicable to their scenario because the allegedly stolen goods do not meet this value requirement.(14) Courts have taken a variety of approaches in determining the "value" of trade secrets.(15)

      4. Knowledge that Items Were Stolen

        The government must introduce evidence establishing that the defendant knew the items were stolen.(16) In one case, a court held that proof of a defendant's comings and goings was sufficient to clearly suggest that the defendant knew the goods he was selling were stolen.(17)

      5. Stolen, Converted or Taken by Fraud

        Finally, the Act requires a physical theft. In other words, the "goods, wares or merchandise" must be physically "stolen, converted or taken by fraud."(18)

        In United States v. Bottone(19), the defendants removed documents containing trade secrets from an office without the owner's permission and photocopied these documents in one defendant's home (with his personal copy machine onto his own paper) before returning the originals.(20) Then, the defendants transported the photocopies in interstate commerce.(21) The Second Circuit held that the copies constituted "goods, wares, or merchandise" which had been "stolen, converted or taken by fraud."(22)

        Although the Bottone court asserted that "where no tangible objects were ever taken or transported, a court would be hard pressed to conclude that `goods' had been stolen within the meaning of [the Act]," one federal district court has found a theft occurred under the Act where a defendant accessed someone else's computerized electronic text file and transferred the file over the telephone wire.(23)

    2. Trade Secrets Act

      The Trade Secrets Act(24) prohibits the disclosure of confidential information by public officers and public employees.(25) Anyone violating this statute will be fined up to $1,000 and faces up to one year imprisonment; moreover, violators shall be dismissed from employment.(26)

      The Trade Secrets Act has been used to prevent the federal government from releasing information pursuant to Freedom of Information Act ("FOIA")(27) requests.(28) In CNA Financial Corporation v. Donovan,(29) the D.C. Circuit held that the Trade Secrets Act does not prevent the release of information under either Exemption 3(30) or Exemption 4(31) of the Freedom of Information Act, if such information is held to be otherwise releasable under FOIA.(32) After an extensive review of the legislative history of both the Trade Secrets Act and the FOIA, the court concluded that the Trade Secrets Act does not qualify as an Exemption 3 withholding statute.(33) The court also stated that any information that falls outside Exemption 4 is an authorized disclosure for purposes of the Trade Secrets Act.(34) By also ruling that the scope of the Trade Secrets Act is "[a]t least coextensive with" the scope of Exemption 4,(35) the court essentially decided that the FOIA exemptions, not the Trade Secrets Act, control the release of information pursuant to a FOIA request.

    3. Mail and Wire Fraud

      The mail fraud 36 and wire fraud 37 statutes provide criminal sanctions for using or attempting to use the United States mails and wires to perpetrate fraud. Unlike the National Stolen Property Act discussed above, these statutes are regularly applied to the theft of intellectual property,(39) such as trade secrets.(40)

      Violation of these statutes requires neither proof that the scheme's victims were in fact defrauded(41) nor proof that the defendant gained anything through the scheme.(42) Rather, violations turn on actual intent.(43)

      Violators of either statute are subject to a maximum fine of $1,000 or up to 5 years imprisonment, or both.(44) If the violation affects a financial institution, the defendant may be fined up to $1,000,000 or imprisoned for 30 years, or both.(45)

    4. Racketeer Influenced and Corrupt Organizations Act

      Criminal sanctions for theft of trade secrets are also available under the Racketeer Influenced and Corrupt Organizations Act ("RICO").(46) Although most cases brought under RICO are civil actions,(47) the predicate acts necessary to sustain a RICO claim are violations of criminal laws.(48) Consequently, the elements of civil and criminal RICO actions are strikingly similar. Section 1962(c) of the statute outlines prohibited activities.(49) The definition of racketeering activity includes mail fraud,[50] wire fraud,(51) activity prohibited by the National Stolen Property Act,(52) and the federal statute prohibiting the receipt of stolen property.(53)

      If the other elements of a RICO claim are satisfied,(54) the statute can be used to prosecute for the theft of intellectual property in contravention of the statutory prohibitions mentioned above.(55) This is an attractive option for the government because it offers stricter penalties than the other federal statutes. Violation of RICO carries a $25,000 fine or 20 years imprisonment, or both.(56) Additionally, it requires the defendant to forfeit his interest in any enterprise established, operated, or maintained in violation of the statute.(57)

      Addressing the issue of employer liability under section 1962(c), one district court held that where wrongdoers, although employees of a corporation, act outside the corporation in performing the predicate acts necessary to sustain a RICO violation, the corporation could not be held liable.(58) The court reasoned that the corporation could not be held liable for RICO violations unless it was associated with or used by the wrongdoers and was engaged in a pattern of racketeering activity.(59) Furthermore, the court held the corporation could not be liable under RICO for the racketeering activity of its employees on the basis of respondeat superior.(60)

      Courts have also wrestled with the definition of a "pattern of racketeering activity" within the meaning of the RICO statue,(61) and have arrived at differing conclusions. One district court held that the definition is met by a single scheme of trade secrets misappropriation if there are sufficient allegations of concerted activity directed toward a goal of injuring the plaintiff.(62) In this case, the plaintiff alleged...

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